The ability of U.S. producers to feed a burgeoning global population depends on nine crucial factors, according to Jim Wiesemeyer, senior vice president, Informa Economics, speaking at the National Alliance of Independent Crop Consultants, in Jacksonville, Fla.
Global growth and the rise of the middle class in developing countries. The shining example – China. Over the last 10 years, real income in China is up 175 percent and dairy consumption is up 212 percent.
China has also fallen hard for the automobile, noted Wiesemeyer. “China did not import a single barrel of oil just a few years ago. Today, they are the second largest world importer. The Chinese are like we were in the 1950s and 1960s, loving cars. And they aren’t going to go back.”
In addition, “China’s purchases of both soybeans and energy forces the United States and other countries to become more efficient and innovative in the use of energy. Now we have a big competitor as a customer.”
The value of the U.S. dollar. “The best producers tell me they are going to watch the U.S. dollar. Once it bottoms, they are going to be aggressive sellers. That will be the beginning of the tempering of the bull market.”
Worldwide biofuels production. Europe and the United States are starting to have discussions of how much energy should be utilized from corn and other food products, Wiesemeyer said. “There is still wide support in the United States on corn for ethanol.”
The role of trade and trade liberalization and transportation. To continue to grow and produce crops “you have to have a sane trade policy and an infrastructure program for throughput, either domestically or to export,” Wiesemeyer said. “(The latter) is where we are going to be wanting over the next few years. The one thing that has made agriculture competitive for decades is our river system, the locks and dams, the ports, the railroads. But this system is in need of a couple of trillion dollars just to keep up. So there are going to be some competitiveness issues in the coming years.”
Energy and agricultural input prices. These are crucial in making planting decisions.
Developments in biotechnology, yields and precision. “I’ve been to meetings over the last three months in which the major theme was precision agriculture,” Wiesemeyer said. “One big seed company purchased an equipment company recently that in one field pass can plant up to six varieties of seed. Bottom line, by the end of the decade you will see a fundamental shift in seed technology that will really boost yield potential to serve this growing market.”
Additional crop land in Brazil, Ukraine and Africa. “The future breadbasket of Europe is Ukraine, Kazakhstan and Russia. Investment plus good soil plus freedom equals production. You could see some investment come into Ukraine.”
Weather and politics
Weather. “These last two things can make you look stupid. One is weather. Are we going to have another drought this year? We are down to pipeline stocks right now. We have the lowest cattle inventory since 1953. Our U.S. producers have not stopped their expansion, but they will if we have another drought. You could have demand destruction that will take years to bring back. That’s how significant this coming crop season is.”
Politics and policy. “If Washington doesn’t deal with debt and spending, and really deal with it, or if Europe’s economy goes into severe recession, it’s going to get ugly. I don’t think that will happen.”
On the other hand, Wiesemeyer hasn’t seen this much discord on the Hill since he’s been there.
“When I got to Washington in the mid-1970s, both parties talked to each other. They were civil. We had a president who was president of all of the people, not just a party. There was a line of demarcation.”
Wiesemeyer said that crop insurance is also a likely focus of farm bill discussions. “We already have record crop insurance payouts for the 2012 U.S. crop of 12.4 billion. Total premiums were a little over 11 billion dollars. For the first time since 2002, the government and the crop insurance industry are going to pay out more than it took in.”
The biggest payouts went to corn producing states, Illinois, $1.6 billion, and Iowa, $1.3 billion.
“In the farm bill baseline over the next 10 years, government analysts project that crop insurance will spend $90 billion, second only to the nutrition program in the farm policy,” Wiesemeyer said. “So the naysayers of farm policy, the Environmental Working Group, etc., are going to target crop insurance in the years ahead.”